World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Saturday, January 23, 2010

It would appear that we are at an important juncture in the markets. I wish I had more time to work on and report on technical analysis for you, but I am choosing instead to focus my attention on trying to enact change. I am still organizing volunteers, developing the new website, and working on strategy. Again, any help along those lines is appreciated.

Friday was an 87% down day on the NYSE by volume.

The DOW lost 217 points on the day, 572 points top to bottom for 5.3% on the week.

The S&P lost 25 points on the day, 60 points top to bottom for a 5.2% loss after topping at 1,150.

The NDX lost 55 points on the day, 105 points top to bottom for a 5.5% weekly loss, and the RUT performed slightly better.

The major uptrend lines are clearly broken and the topping technical patterns we’ve seen develop, namely the smaller rising wedge and expanding megaphones, proved prophetic and are now obviously confirmed.

Next week there is a lot of important data coming out with the 4th quarter GDP being the most important. Expectations are north of a trumped up and laughable 4% plus. There will also be the FOMC meeting beginning on Tuesday.Of course the battle of Bernanke’s reconfirmation rages. This is nothing but a distraction from my perspective. The puppet gets played by the puppet masters and the media and people are all confused, worked up, and distracted from the bigger and more important reality. That being that it doesn’t matter who is running the Fed, they work for the central banks. Replacing Bernanke won’t fix anything, ending the Fed and our debt backed system will. Keep your eye on the debt and the purveyors thereof.

Here are the games being played:

NEW YORK (CNNMoney.com) -- With only a week left before Federal Reserve Chairman Ben Bernanke's term ends, the Senate lacks the 60 votes to force a confirmation vote.

And the White House and Senate leaders are starting to scramble, as more Democratic senators say they plan to vote against giving Bernanke a second term as Fed chief.

Sen. Barbara Boxer, D-Calif. and Sen. Russell Feingold, D-Wis., both said Friday that they plan to vote against Bernanke. Several other Democratic senators told CNN they're undecided.

"It is time for a change -- it is time for Main Street to have a champion at the Fed," Boxer said in a statement. "Dr. Bernanke played a lead role in crafting the Bush administration's economic policies, which led to the current economic crisis. Our next Federal Reserve Chairman must represent a clean break from the failed policies of the past."

But the Senate can't even start the process of considering Bernanke until 60 senators sign off, because a few senators who oppose his confirmation filed official "holds" delaying the process.

The math to 60 -- at this point -- looks bad for Bernanke," wrote Chris Krueger, an analyst for Concept Capital Washington Research Group in a report. "Chaos is reigning on the Hill right now and Democratic members are in severe anxiety over their own re-elections."

Some are really starting to wonder whether Bernanke will be confirmed before Feb. 1. If the vote is delayed, there's a question as to whether Bernanke can be temporarily re-appointed as acting chair. If not, Fed Vice Chair Donald Kohn would serve as acting chairman.

Senate leaders were unsure Friday how the votes were going to play out or when they'd start the procedure to force a vote.

Again, this is a distraction, look up and you will see the strings. Look down and you will see our chains being pulled. Darn, those shackles are really beginning to hurt! Oh yeah, we know when our chains are being pulled and you knew it was coming the day of Goldman’s record profit announcements (bad cop) that was obviously coordinated with Obama’s slap down routine (good cop). Pleeesssse.

Surprise! The market goes down hard. Who could have guessed? Now we have to figure out the next stage of the game, and make no mistake, they are playing games in what has become the world’s largest unregulated thug casino.

If you got short on a break of that megaphone, about 1,130ish, congratulations, I hope you were wise enough to take some profits into the close yesterday. The short term stochastics are WAY oversold, a place were we could receive EITHER a rip roaring rally on Monday, or a continuation of downward motion crash style. This is the danger zone – room on the daily stochastic, below the bottom Bollinger, fresh sell signal on the weekly charts, but very oversold short term. Bounce or crash – with this setup there’s usually not a lot in-between. All out crash is a very low odds event, but the action looks very bearish and the doorway can get awfully small awfully fast. Hard down on Monday could lead to an intraday reversal, so be careful. Reconfirmation of Bernanke, or at least proceeding forward on a vote would likely be considered bullish, and visa versa.

The DOW is down more than 500 points off the high, remember that the last 3 times we received VIX sell signals that we had selloffs of 1,000 points or more over the course of the next several weeks. Once again that signal was prophetic. In case you are wondering, do not expect a Hindenburg Omen for quite some time. This is due to the fact that stocks are so far off their 52 week lows that it will take a lot of that action to produce new lows. Although I do note that many names have given back sizable chunks already, selloffs are coming on relatively good earnings, another sign of a major top.

I’m noticing that the Elliott Wave people I follow are all in agreement on the short and mid term. It would seem that we are beginning wave C or wave 3 down depending on their primary wave count. Whatever they label the move, they are all expecting a sizable move. Prechter is looking for 1,000ish on the DOW, that would be a giant Zig-Zag. McHugh is looking for the same but is open to a flat type of formation or a Zig-Zag towards zero. And Tony Caldaro is looking for a flat type of formation that would likely double bottom near the March ’09 lows. I think it depends on events between here and there, there are still choices to be made and hopefully we can help give a kick in the pants so that those choices are good ones. I am keeping my eye on the debt, that is the tell for progress or lack thereof.

Heading over to the charts, the SPX just rammed through support in the 1,115 area and landed on the next level of support just above 1,090. You can see it’s well below the 50dma, well below the bottom Bollinger, and nearing oversold on the daily. Again, the weekly chart just produced a fresh sell signal. The support pivots are right here at 1,090, and then not again until 961 where there is a massive volume void, an area that may draw prices towards it if the heavy support is broken in the 1,080ish and just below area. That 1,080ish area is the next key location:

On the SPY you can see the same detail but note the volume. Much higher and confirmatory volume. What is different about this descent is that the first volume spike was followed up by the second. That has not happened during this entire B wave rally:

The DOW is actually a little more bearish looking than the SPX at this point, having broken beneath the entire previous support shelf:

Next up is a one year non log chart of the DOW. Clearly the large rising wedge and uptrend line are broken, there is no denying that. This is a good perspective of the continuous 10 month long volume divergence and 6 month long RSI divergence – both are historic. Prices on the DOW are already back to where they were in mid October:

The DOW Industrials triggered a triple bottom breakdown flipping the prior bullish target to bearish with a 9,650 initial target:

DOW P&F:

The NDX also has a bearish target but that initial target was already reached. The Wilshire 5,000, the widest market index, produced a bearish target also that is quite a ways down:

WILSHIRE:

As is typical at major turning points, there was a non-confirmation between the Industrials and the Transports near the top where the Industrials made another new high but the Transports did not. Below is a one year chart of the Transports, uptrend is now clearly broken:

The XLF made its high for the rally way back in October, made a new double top and is now being rocked once more with very heavy volume selling despite positive (trumped and casino manufactured) earnings. A break below $13.70 is very bearish:

The dollar is in either leg 3 or c up, stalled slightly, but still looking to target 81ish with a potential gap fill up to 82. After that we’ll have to evaluate later. According to Prechter the dollar is beginning a longer term uptrend:

You can see the opposite happening in the Euro which is targeting roughly 1.35 on this current leg:

The Japanese Yen has actually been strengthening a little, that will wind up hurting the Japanese who need it to continue to lose value.

Troubling is that as equities are selling off hard all of a sudden, bonds are rising a little, but not strongly. This is what I’ve been expecting, that as stocks decline, bonds prices flatten or go up a little, but during times that stocks go up, bonds prices drop dramatically, thus ratcheting their way up in yield.

Oil has again broken below support, a bearish looking breakdown:

Gold is trying to find support in the $1,080 area and held up relatively well on Friday compared to the rest of the market. Should it break support in that area, the next support level is down around the $1,030 area, and then just under $1,000.

The XAU is oversold and landed on up sloping support:

The Point & Figure chart pattern for gold is targeting $930:

GOLD:

Of course the pundits will be saying the correction is healthy... And at some point we’ll bounce, but my suspicion is that the new higher high may not be there for quite some time. Again, Monday is a dangerous day either way, so please be careful as desperate people do desperate things, that includes central bankers who own quant computers.

Note the wild swings that are now appearing on the CPI chart. Those are lagging the wild swings elsewhere, like in equities and oil. Do they now get the wild swings under control, or do they swing larger until the system breaks? I say it breaks:

Consumer credit is still falling and take a look at non financial commercial paper, now down nearly 50% on the year? Wow.

Total Loans and Leases as well as Commercial and Industrial loans at commercial banks continue to decline:

The trailing P/E is back to another all time record high just under 150. This is the historical number guys, do not believe for a second future forecasts or P/E’s that are based upon “operating” earnings where the latest trick is to take “one time” huge write-offs under another name each and every quarter. This number should come down as the current earnings season progresses, but it will be nowhere near normal historic levels:

Below is the latest M2 expressed in YoY change in billions. M1 and MZM look similar:

Below is YoY change in institutional money funds:

Retail Money Funds:

Oh yes, we could go on and on, but I’ll leave it here for now. Enjoy your weekend… but don’t fear the equity market Reaper, in this instance change is good.